Boomer Retirement: Headwinds for U.S. Equity Markets?

Boomer Retirement: Headwinds for U.S. Equity Markets?

By Zheng Liu and Mark M. Spiegel

FRBSF Economic Letter: Federal Reserve Bank of San Francisco

www.frbsf.org; August 22, 2011



Historical data indicate a strong relationship between the age distribution of the U.S. population and stock market performance. A key demographic trend is the aging of the baby boom generation. As they reach retirement age, they are likely to shift from buying stocks to selling their equity holdings.



My comment...

As Baby Boomers retire and cash in their 401k and IRA accounts, there will be downward pressure on stock prices; it is simply the law of supply and demand. Buying stocks or equity mutual funds now virtually guarantees sub-par returns over the next decade or longer. This demographic trend is shown in the above charts as the M/O ratio, where M is the middle-age-cohort (age 40-49) and O is the old-age-cohort (age 60-69). As the 77-million strong Baby Boom generation (born from 1946 to 1964) ages, the M/O ratio which peaked around 2002 will continue to fall, and as equities selling pressure increases and buying pressure decreases, the P/E ratio will fall in sync with the falling M/O ratio.